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Week three of earnings season and so far better than 85% of companies are exceeding expectations on revenues and profits. Things going in the right direction barring any future shutdowns from the Coronavirus.

by Fortem Financial November 2, 2020

The S&P 500 posted its worst weekly return since March due to a risk-off tone as we enter election week. Mega cap technology underwhelmed high expectations, and COVID-19 cases hit new highs across the U.S. and Europe. The five largest technology firms, which account for over 20% of the S&P 500’s weight, reported mostly disappointing results. While big technology came in ahead of consensus estimates, marginal beats and disappointing future guidance weighed across the sector. Apple Inc. missed on iPhone sales and did not provide an outlook for next quarter. Amazon.com Inc. handily beat estimates but future margins disappointed traders due to higher COVID-19 related expenses. Despite revenue increasing by 12%, shares of Microsoft Corp. fell over 7% on a cautious guide. By contrast, Alphabet Inc. posted material upside to expectations on strength from YouTube and a resurgence in digital advertising that carried across Facebook, Inc. and Pinterest, Inc. as well. With the majority of the S&P 500 market cap reporting results to date, over 85% of firms have beat on the bottom line. In economic news, gross domestic product grew at a 33.1% annualized rate for the third quarter, led by a recovery in consumer spending. Tuesday’s election will take center stage with various different outcomes likely to drive future policy change across different industries. Longer-term, corporate fundamentals and normalization of the U.S. economy will likely be bigger drivers of return, in our view. It's widely believed that phase three results will be released in November from multiple vaccine candidates, which could be a big step in the right direction for a full reopening of the economy.

Long-term U.S. Treasury bond yields rose throughout last week as markets had a risk-off tone with Election Day looming, stimulus talks stalling, and COVID cases rising. The steepening in the yield curve is perceived to be investors positioning themselves for a “blue wave” coming after this week’s Election Day. The month of October ended with a record-setting amount of state and local government bond sales as municipalities try to take advantage of low rates ahead of what could be a contentious election. Public officials sold over $71 billion of debt last month, which was 22% higher than the previous high in December of 2017, according to Bloomberg. Last week also produced a slew of encouraging economic data. On Tuesday, new orders for durable goods in September were well above expectations. On Thursday, the first estimate for third quarter GDP was reported at 33.1% annual rate, 1.1% higher than the consensus estimate. This was largely due to strong consumer spending growing at a staggering 40.7% annual rate. The week ended with positive personal income data for the month of September. Personal income increased 0.9%, well above expectations, led by strong private sector wages as government aid waned.
Source: First Trust


Chart reflects price changes, not total return. Because it does not include dividends or splits, it should not be used to benchmark performance of specific investments. Data provided by FactSet.

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(760) 206-8500
team@fortemfin.com

 

 

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